It’s been a rough week — to put it mildly — but it’s nothing that we didn’t see coming a mile away. We already warned you the economy would take a downturn. But if you didn’t believe my charts, maybe you’ll believe this indicator…
Bitcoin is pointing to commodity disinflation. And, yes, for the billionth time, Bitcoin is a commodity. But first — speaking of the crypto space — let’s go back to one of the hottest names of 2020…
After much speculation, everyone’s favorite meme stonk, GameStop Corp. (NYSE: GME), finally announced it is launching an NFT marketplace and getting into the crypto space.
From a stock price perspective, that helped break a nasty two-month sell-off of 52% — with shares up as much as 25% Friday morning.
Source: Bloomberg
However, the shine wore off of that announcement quickly, and shares have pulled back to about a 4% gain by the close.
Source: Bloomberg
From the perspective of the broader crypto market, the announcement’s timing wasn’t good at all with Ethereum (ETHE) 37% below its recent highs, and Bitcoin (BTC) down 41%.
Source: Bloomberg
Frankly, it looks like it’s going to get worse…
The next support line test coming up for Bitcoin is at September’s lows just below the $40,000 mark. And if that fails — which I expect — then look for crypto markets to slide all the way down to test summer 2021’s lows.
Bitcoin and Commodity Disinflation. The Indicator You Didn’t Think Of
Over at least the next two months, the economic backdrop for commodities — I include crypto here — isn’t exactly favorable.
As we’ve been saying for about a month now, commodity inflation has peaked… And each leg has been led by the crypto space.
Although we are starting to see some upward divergence in coking and thermal coal, those are driven more by supply shortages than macroeconomic factors. If Bitcoin’s chart is telling the truth, the market is headed lower.
Source: Bloomberg
And the other primary focus of financial news media Friday — the jobs report — appears to agree with Bitcoin in that it is indicating commodity disinflation.
J-O-Bs by the 1-2-3s
Economic data releases this week have largely had a bearish tint to them.
ISM Prices Paid and auto sales showed serious pullbacks on Monday, mortgage applications fell on Tuesday, and ISM Services disappointed on Thursday.
Source: Bloomberg
And although ADP released a positive jobs report on Tuesday, hopes were crushed by the government’s nonfarm payrolls report Friday morning, which came in more than 50% below expectations.
Source: Bloomberg
To us, that confirms the economy is slowing at the moment. And it’s certainly creating a ton of fear, uncertainty and doubt — or “FUD” — in the market.
That’s one key reason why we put out Thursday’s bonus trade on gold.
Another key reason is disinflation, which we should get a read on next week when December’s Consumer Price Index data is released.
Expectations are for year-on-year comparisons to rise from 6.8% to 7.1%. But we know for a fact that commodities — specifically, energy and food — declined.
Gasoline, crude oil and natural gas were down as much as 10%,13% and 22%, respectively, on a month-on-month basis.
Source: Bloomberg
Similarly, corn, soybeans and wheat were down as much as 1%, 3% and 8%, respectively.
Taken together, food and energy account for about 22% of the CPI. For that reason, my models show a slight decline in monthly CPI, from 6.8% to 6.6%.
We’ll see how the chips fall next week. There are certainly other parts of the index — like shelter — that may see a continued acceleration.
But with retail sales’ seasonal tendency to peak in December, directionality for the consumer is clear.
At least in the short term, the economy is headed lower.
All the best,
Matt Warder
Fortune Research
